Economic outlook for 2025 and implications for corporate planning

Divergent regional growth stories

The global economy maintains a solid, trend-consistent pace at the beginning of 2025. While we do not expect 2025 will necessarily be a disappointing year, we also do not anticipate demand picking up strongly. Instead, we expect increasingly divergent growth and risk patterns across regions.

In Europe, we believe a ceasefire between Ukraine and Russia would provide a modest boost to Eurozone economies, mainly due to higher military spending prompted by increased security fears and lower gas prices. The outcome is beset by risks, particularly if the settlement is on Russia’s terms.

Within this region, Central and Eastern Europe will continue to perform particularly well in 2025, following the strong growth in 2024. Some of the European countries most exposed to tourism, particularly some of the Mediterranean countries such as Spain, Portugal and Croatia that have performed better last year and will continue to perform strongly in 2025. On the other hand, some of the core European markets, including Germany, the UK, France and Italy, are likely to underperform compared with other advanced economies and the world economy.

In Asia, we expect EM Asian economies to be the fastest growing economies in 2025, particularly India, Indonesia and even China, although its growth will continue to slow. Growth in Japan and Australia should pick up this year, creating opportunities across the developed markets portfolio.

In the US, we continue to expect relatively resilient growth. However, the US economy will continue to be tested by heightened trade policy uncertainty.

Consumer demand outlook for 2025

US consumer demand will remain solid, growing very much in line with the pace of the global consumer market. Europe will continue to underperform. Countries in emerging Asia and the Middle East will be the fastest growing in terms of the consumer market. Last year, India officially overtook Japan as the 4th largest consumer market on the planet, just behind the US, China and the Euro area. In some of these emerging markets, including India, middle class consumers will continue to create opportunities in 2025 and beyond, as we highlighted in our whitepaper, the Future of Middle Class in Emerging Markets.

Manufacturing will recover, but the process will be fragile

We think global manufacturing will gradually begin recovering in 2025. Our Industrial Cycle Index (ICI) for the advanced economies signals that global manufacturing is at the bottom of the cycle and has moved into tentative positive territory since the onset of 2025. Still, the ICI has been stuck near a trough for several months, underscoring the fragility of the coming cyclical expansion, which will be shallow compared to previous cycles.

Asia Pacific will remain the biggest contributor to global manufacturing in 2025. The US manufacturing sector is expected to perform somewhat better in 2025 as well. Trade protectionism in a way presents some of the boost. Secular trends such as the digital economy, increasing electricity consumption and national defense will create pockets of strength.

The turning point for global industry, however, hinges on European rebound. Key drags on output, including high interest rates, poor consumer demand, high corporate inventories and energy prices should gradually fade as 2025 unfolds, setting the stage for a limited growth comeback.

Tariffs, inflation and cost

Tariffs have become one of the most important words in the dictionary for many recently. US President Donald Trump’s actions and rhetoric on tariffs have prompted us to bring forward the timing of the implementation of tariffs in our baseline forecast. We’ve also added a 10% across-the-board tariff on imports from the EU to our baseline. However, we still don’t see the tariff developments change the broad growth story. Also, while higher tariffs will increase price pressures in the economy, it remains unclear whether tariffs will prove a meaningful effect on inflation.

In terms of interest rates, an important consideration for corporate planning, we expect them to continue to come down, but more cautiously than many firms may have expected when building 2025 plans. In the US, we expect only one cut from the Federal Reserve this year, while in Europe rates are coming down faster due to concerns around growth. However, both demand and tariff uncertainty mean that the evolution of credit costs this year both in developed and in emerging markets remains somewhat more uncertain.

We broadly expect a strong dollar in 2025, which could put pressure on emerging markets currencies, in particular. Meanwhile, tariff risks are likely to put pressure on the Chinese yuan and push it towards further weakening against the USD.

Planning for 2025 and beyond

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